Question

INCOME STATEMENT

Edmonds Industries is forecasting the following income statement:

Sales	$10,000,000
Operating costs excluding depreciation & amortization	5,500,000
EBITDA	$4,500,000
Depreciation and amortization	1,300,000
EBIT	$3,200,000
Interest	500,000
EBT	$2,700,000
Taxes (40%)	1,080,000
Net income	$1,620,000

The CEO would like to see higher sales and a forecasted net income of $2,835,000. Assume that operating costs (excluding depreciation and amortization) are 55% of sales and that depreciation and amortization and interest expenses will increase by 14%. The tax rate, which is 40%, will remain the same. (Note that while the tax rate remains constant, the taxes paid will change.) What level of sales would generate $2,835,000 in net income? If necessary, round your answer to the nearest dollar at the end of the calculations.

Answer 1

Sales(balance)(100%)(6,777,000/0.45)	$15,060,000
Operating costs  excluding depreciation & amortization(55%)(15,060,000*0.55)	$8,283,000
EBITDA(45%)($5,295,000+1,482,000)	6,777,000
Depreciation and amortization(1,300,000*1.14)	1,482,000
EBIT($4,725,000+570,000)	$5,295,000
Interest(500,000*1.14)	570,000
EBT(100%)(2,835,000/0.6)	$4,725,000
Taxes(40%)($4,725,000*0.4)	$1,890,000
Net income(60%)	2,835,000